Stronger ringgit expected on Fed rate hike pause

KUALA LUMPUR: The peaking of key policy rates in developed economies is expected to bolster the strengthening of the ringgit, says Bank Negara deputy governor Adnan Zaylani Mohamad Zahid.

“We are not out of the woods yet,” he said despite getting a respite recently due to the expectations that the Federal Reserve (Fed) is done raising interest rates.

“We can’t take that for granted, however. Bank Negara will continue to monitor and undertake our actions appropriately in the market as well as continue to be prepared and working with the financial industry,” he added.

Fed chair Jerome Powell on Dec 1 reaffirmed the central bank’s intent to remain cautious on interest rates and is prepared to tighten policy further if it becomes appropriate to do so.

The US stock market indices ended higher on Dec 1 with the S&P registering its highest close of the year following Powell’s remarks.

Yesterday, the ringgit opened higher against the US dollar, taking its cue from the positive external developments.

The ringgit rose to 4.6575/6625 versus the greenback at 9.10am yesterday compared with Friday’s close of 4.6710/6760.

“If this scenario plays out, where the global developments are such that we do see a peak in interest rates in developed markets next year or even as we speak now, then the regional currency as a whole is expected to do better, including the ringgit,” Adnan told reporters at Bank Negara’s media workshop yesterday.

“In any case, our fundamentals are currently positive. We had a lot of announcements on infrastructure projects, energy transition and the New Industrial Master Plan (NIMP).

“A lot of things the government has been working on this past year and even started before this, and things are starting to come into the picture. We have seen significant news on foreign direct investment as well.

“We would expect these to start to flow into the market in the coming quarters and that will create more momentum for the ringgit.

“We are positive on the outlook for the ringgit for this coming year. I think a lot of analysts are forecasting a stronger ringgit in the coming year as well,” he added.

Adnan reiterated that the central bank’s priority is to manage the ringgit.

“Given the challenging environment that we faced in the past two years, it is one of the things we look at day in, day out – what we are doing with the ringgit to stem excessive volatility.

“We are impacted by global developments that any adjustment in the ringgit financial market is done in an orderly manner,” he said, adding that in the long run, the currency will reflect the fundamentals of the economy.

Responding to Bank Negara governor Datuk Abdul Rasheed Ghaffour Abdul Rasheed’s statement that the ringgit is the smallest in terms of volatility compared with the regional currencies, Adnan explained that the dollar-ringgit registers between 4% and 5% volatility annually.

“This is lower than our neighbouring countries which could be at between 8% and 9%.

“If we take for example 35 Thai baht against US$1. If it is 8% volatility over a period of one year, it could range between plus or minus 8%,” he said.

Meanwhile, Abdul Rasheed told Bernama that the country will see more green and climate-change related investments next year to support economic growth which is projected at 4% to 5%.

He said the government and the private sector have undertaken a number of multi-year projects that would contribute towards the nation’s economic growth from next year onwards.

“There are a number of plans that the government has already announced, one of which is related to climate change, which is the National Energy Transition Roadmap (NETR).

“There are also a lot of projects that are going to be implemented.

“There are 10 flagship projects and these will cover the six important levers of the green economy that will also support economic growth not just (for) next year, but over the next three to five years,” he said on the sidelines of Malaysia’s Climate Finance Day in the Malaysia Pavilion at the 28th Conference of Parties or COP28 to the United Nations Framework Convention on Climate Change in Dubai.

Abdul Rasheed noted that apart from the NETR, the recently launched Hydrogen Economy and Technology Roadmap and the NIMP 2030 will also attract specific investments that will also support Malaysia’s growth in the near term.

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